Export prices continued to fall last month, according to ANZ's commodity price index, suggesting the terms of trade's 37-year high may be about as good as it gets.
The ANZ index fell 1.2 per cent last month, making a cumulative decline of 2.5 per cent over the past three months, led by lower world prices for milk powder, logs and aluminium.
Milk powder prices have fallen 16 per cent from their peak in March, ANZ economist Steve Edwards said, while log and aluminium prices have both fallen 11 per cent from their respective peaks in May and April.
Some commodities bucked the trend: apples, kiwifruit, beef, seafood and venison all rose. But twice as many fell - the broadest decline for a year.
However, on average across the month the kiwi dollar was weaker against the currencies of the country's main trading partners, so that in New Zealand dollar terms the ANZ commodity index was unchanged. Over the year to August export commodity prices rose 22 per cent in world price terms, but just 6 per cent in New Zealand dollar terms.
Meanwhile, Statistics New Zealand reported the terms of trade rose 2.3 per cent in the June quarter to the highest level since March 1974.
It is a measure of export prices relative to import prices, indicating the changing volume of imports that can be funded by a fixed volume of New Zealand's exports.
The latest improvement - the seventh in a row - reflected both higher export prices (up 1.8 per cent) and lower import prices (down 0.5 per cent).
Leading the gains were oil (up 13 per cent), wool (up 12 per cent), and dairy products (up 4.5 per cent).
Westpac economist Michael Gordon said that rise in dairy prices reflected prices contracted earlier in the year.
The fall in dairy prices over the past few months would show up in the terms of trade data over the second half of 2011.
"We think that today's figures will mark the peak in the terms of trade for the near future, and we expect a drop of about 6 per cent over the next year.
"Export commodity prices are starting to head lower as the global economy cools, though we expect this to be partly buffered by an easing in the exchange rate over the next year too," he said.
Goldman Sachs economist Philip Borkin expects the terms of trade to remain high by historical standards, underpinned by growing demand for the foods of affluence in emerging economies.
"However, we believe the terms of trade is close to a near-term peak and will moderate over the coming two years as the prices for export commodities retreat from current high levels."
ASB economist Jane Turner said caution among farmers had seen much of the increased revenue saved rather than spent, muting the stimulatory impact of higher export prices on the rest of the economy.
"Providing commodity prices remain above average, confidence in the rural sector should improve over the next year and stimulate additional investment and spending throughout New Zealand," she said.
* Down: ANZ commodity price index by 1.2 per cent in August.
* Up: Terms of trade by 2.3 per cent in the June quarter to the highest level since 1974.